1/15/13

I know the numerator for calculating break-even point is Fixed Cost, but is the denominator gross margin or contribution margin? I've seen it done both ways and am very confused which one to use.

gross margin=Revenue-Variable Costs and contribution margin=Price-Cost.

Which one is it?

Comments (5)

1/15/13

Repeat after me:

When the unit sales price is unknown, to find the break-even REVENUE we do the following:

=Fixed costs / Contribution margin

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In reply to companion
1/15/13

companion:
Repeat after me:

When the unit sales price is unknown, to find the break-even REVENUE we do the following:

=Fixed costs / Contribution margin


When the unit sales price is unknown, to find the break-even REVENUE we do the following:

=Fixed costs / Contribution margin

In reply to companion
1/15/13

companion:
Repeat after me:

When the unit sales price is unknown, to find the break-even REVENUE we do the following:

=Fixed costs / Contribution margin

I'm not following. If you don't know price, how would you calculate contribution margin? Seeing that contribution margin=units sales price-unit variable cost.

In reply to companion
1/15/13

companion:
Repeat after me:

When the unit sales price is unknown, to find the break-even REVENUE we do the following:

=Fixed costs / Contribution margin


False.

When you do not know what unit selling price is, you can calculate the amount of revenue needed to break event by: FC/CM Ratio

CM Ratio =/= CM

1/15/13

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